Yesterday, investor Carl Icahn tweeted a promise to post an open letter to Tim Cook. Today, he posted that letter.
The letter is long, so follow the link if you want to read the whole thing. At the heart of the matter, Icahn is asking Tim Cook to buy back more shares:
Described in more detail below, these factors combine to reflect a massive undervaluation of Apple in today’s market, which we believe will not last for long. Therefore, given the persistently excessive liquidity of $133 billion net cash on Apple’s balance sheet, we ask you to present to the rest of the Board our request for the company to make a tender offer, which would meaningfully accelerate and increase the magnitude of share repurchases.
Icahn owns 53 million shares of stock. He offers this statement to diffuse any cynicism:
To preemptively diffuse any cynical criticism that you may encounter with respect to our request, which might claim that we are requesting a tender offer with the intention of tendering our own shares, we hereby commit not to tender any of our shares if the company consummates any form of a tender offer at any price. We commit to this because we believe Apple remains dramatically undervalued.
This does not diffuse my cynicism. This strikes me as a simple push to build demand for the stock and increasing the value of his holdings. Not a new strategy for Icahn.
Be cynical if you must, but it doesn’t change the fact Icahn is right. Apple is undervalued, and the company has more liquidity than they know what to do with. It’s like having a million dollars in your checking account and $10k in stocks and bonds. Anyone would tell you to invest better, and unless you believe the company is doomed, Apple is a great investment.
I wish Apple would buy back all of Icahn’s stocks. What an annoying needy idiot.
A lot of words essentially meaning “keep up the good work”, and “step up your buy-back program”… Even if its self serving, it’s at least based on reality (not always the case with Icahn.)
The only real off-track statements would be in the Ultra HD section. I fear Icahn may be listening too much to Gene Munster.
I think “diffuse cynicism” should be “defuse cynicism”.
Sorry for the grammar nazism!
Well of course it’s a push to drive up the value of his holdings, why else would he be doing anything at all? He’s not a philanthropist.
Icahn is an attention whore using apple to get that attention. Same as half the companies alleged to be apple suppliers for vaporware and the sites etc posting the rumors.
The stock is undervalued because of bs rumors by analysts of products and specs and the BS rumors of issues to cover their errors. And other similar crap
Stocks lose money. Look at GT Advanced. It lost $10 a share (which was already under $20) on the news of that bankruptcy. Apple jumps up and down itself. There is risk.
But my checking account is risk free. It only “loses” when I spend it.
Saying Apple is undervalued is like saying Amazon is over-valued, the stock is not the company. Stocks are valued at what the market will pay for them. Should Apple stock be more valuable? Who’s to say?
“The Market” seems enamored with growth. If they’ll bid up Amazon, with its, essentially non-existent, profit in the hopes of continued growth they deserve what they get. What does Apple get from spending its, admittedly plentiful, cash on a big[ger] stock buy-back program? Nothing, really. Execs with big grants and lots of options will make, even, more money—big deal. Of course Ichan, with his 53 million shares, will get a bigger payday faster, but that’s just a co-incidence, right Carl?
Personally, I like Apple “undervalued.” I buy shares every time I get enough money to make it worth the trading fee, and I let my dividends roll over every quarter. Anyone who doesn’t think Apple is going to continue to print money is an idiot, and the greedy idiots that want to get paid quicker should keep loading up on Amazon. Someday they’ll learn that selling a lot of something that’s very profitable is WAY better than selling a ginormous amount of stuff that isn’t.
“Personally, I like Apple “undervalued.” I buy shares every time I get enough money to make it worth the trading fee…” — And Icahn is advising Apple to do the same. Why is it smart when you and I buy Apple stock, but pointless when Apple does it?
“But my checking account is risk free.” — No, it’s not. That’s why it’s FDIC insured.
I didn’t say it was pointless. It’s a great idea if your point is to enrich current shareholders by making fewer of them. The stock split was stated to be an effort lower the price of AAPL to a level that is accessible to more investors. So reducing the number of outstanding shares would go against that idea. I know what the upsie for me is if I buy Apple shares. What is the upside for Apple if it does? Also, if guy owns 53 million shares of a stock that he truly believes is “undervalued” why doesn’t he own 60 or 100 million? Finally, note I put undervalued in quotation marks, because I value Apple stock quite highly.
“I didn’t say it was pointless. It’s a great idea if your point is to enrich current shareholders by making fewer of them.” — And who are those people? You, me, Carl Icahn, folks like us who believe AAPL has more growth ahead of it and are willing to stick it out. But more importantly, who’s going to sell their shares before it achieves that growth? Worrywarts who believe Apple has past its prime, who believe it can’t survive without Steve, who believe Tim can’t hack it. I don’t want those guys in this stock. Cook doesn’t want them either. Pull those weeds and let the flowers grow.
“The stock split was stated to be an effort lower the price of AAPL to a level that is accessible to more investors.” — And it still is. Pre-split, the stock peaked at ~$700. Now it’s ~$100 and Icahn’s rather optimistic estimate is it’s worth ~$200. Comparatively, that’s very accessible and quite affordable for most Apple customers. Worst case, Apple has to do another split and my shares multiply again.
“I know what the upsi[d]e for me is if I buy Apple shares. What is the upside for Apple if it does?” — Investment in a safe company they believe is on a smart strategic path. Reacquisition of shares to be awarded to employees. Stabilization of stock price by reducing the number of short-term holders.
“Also, if guy owns 53 million shares of a stock that he truly believes is “undervalued” why doesn’t he own 60 or 100 million?” — Seriously? 53 million shares is worth more than $5 billion dollars – with a “B”. That’s more than 25% of his net worth. I guess he can’t be serious unless half his net worth is AAPL.
“Finally, note I put undervalued in quotation marks, because I value Apple stock quite highly.” — So do I, and so does Icahn.
I don’t think you understand how the stock market in general, or stock buy-backs specifically, work. If Icahn is long on AAPL why is encouraging the company to artificially inflate the price of a stock he thinks is undervalued? A price increase fueled by company purchases is only going to benefit those who sell.
Buy-backs aren’t an investment by the company in itself, CAPEX is, and you’ve got less cash for CAPEX if you’re propping up the stock price so profit-takers can cash out. And let’s not forget most of Apple’s cash is off-shore and subject to 36% tax on repatriation. As for rewarding employees, Apple has plenty of treasury shares, but more importantly, rather than colluding with Google to drive wages down, paying industry-leading salaries would not only reward employees but also attract a lot of top-flight talent (or at least the ones smart enough to realize the headaches of entrepreneurship). You also don’t stabilize your stock price by buying back, or more accurately you only stabilize it while you’re doing so. Once you stop, so does the stabilization, absent solid fundamentals. And if you’ve got those, why buy-back?
“Seriously? 53 million shares is worth more than $5 billion dollars – with a ‘B’.” Yep, but he’s saying it’s really worth $10 billion, so why not double down? If he’s that confident it’s just money waiting to be made, right? More likely he wants Apple to help him get paid. Ichan’s bragged about moving AAPL just by Tweeting, and this is just more of the same.
“If Icahn is long on AAPL why is encouraging the company to artificially inflate the price of a stock he thinks is undervalued?” — It’s not artificial. Apple has as much right to buy AAPL as you or me and a responsibility to invest its profits wisely. Having excess cash sitting around isn’t responsible. Apple should invest it better, and you have yet to explain why AAPL is a good investment for our excess money, but not Apple’s.
“A price increase fueled by company purchases is only going to benefit those who sell.” — “Repurchasing shares when a company’s share price is undervalued benefits non-selling shareholders (frequently insiders) and extracts value from shareholders who sell.” http://en.wikipedia.org/wiki/Share_repurchase
“Buy-backs aren’t an investment by the company in itself, CAPEX is” — No, CAPEX is an expenditure on physical assets. It covers property that can go up in value, but also equipment that decreases in value.
“and you’ve got less cash for CAPEX if you’re propping up the stock price so profit-takers can cash out.” — Which might be a problem if they didn’t already have more cash than they could spend. The most Apple has ever spent on an asset is the spaceship HQ, and that’s only $5B. They’re going to record that much profit next quarter. A faster buyback won’t interfere with CAPEX.
“And let’s not forget most of Apple’s cash is off-shore and subject to 36% tax on repatriation.” — I’m not against repatriation. Taxes pay for the roads that connect me to the Apple Store. They pay for the Navy that protects shipments of Gorilla Glass to China. Taxes are a big reason the law of the land is the U.S. Constitution instead of the Articles of Confederation. Also, I’d rather have 64% of my dividend than not have any because it’s sitting in Ireland. What good is cash you can’t ever spend?
“As for rewarding employees, Apple has plenty of treasury shares…” —
Which is stock that was either withheld from public sale or bought back
from the public. It is held in the treasury until needed to raise capital. Conversely, a company can bolster its treasury by spending capital on stock buybacks. I still don’t see why that’s a bad idea.
“You also don’t stabilize your stock price by buying back” — You do if doing so buys out folks like NCPRR. When Cook told them to get out of the stock, he meant they should sell, not dump it in the trash. For them to sell, someone needs to buy. I would gladly do so, but I don’t have that much spare cash. Guessing you don’t either, and despite what you seem to think, nor does Carl Icahn. But Apple has over $150B in cash equivalents. They have enough cash to buy Disney (which I would also support over keeping it as cash equivalents), but I think AAPL is a better buy.
“Once you stop, so does the stabilization, absent solid fundamentals. And if you’ve got those, why buy-back?” — Because it’s undervalued in the market. Because Apple management thinks AAPL is a great investment. Because Apple wants to reward long-term shareholders. These are all standard, textbook reasons: http://www.investopedia.com/terms/s/sharerepurchase.asp
http://en.wikipedia.org/wiki/Share_repurchase
And now if I may circle back to your opening statement: “I don’t think you understand how the stock market in general, or stock buy-backs specifically, work.” — My expectations have been in line with the commonly held explanations of how these systems work. You’re the one who doesn’t seem to know how these things usually work. Now, I will admit, usually is not always, but if you’re going to claim unusual circumstances, your case should include supporting evidence.
Apple can wait. Icahn doesn’t have the patience.
Ichan was directly responsible for destabilizing my company, resulting in a forced and awkward leadership change, severe layoffs, then being acquired, and then a bloodbath of layoffs to follow – and for what’s left, a complete culture shift from a company built on its people to a company that worships the almighty dollar. I rather wish he would retire, one way or another.
Well, no, unfortunately, he’s not an idiot. He’s merely an expert at creating astounding short-term gains that often come at the cost of the future viability of the company.
It’s because of people like him that I’ve come to be against the idea of publicly traded companies. They’re just looking to turn cents into dollars, and to the birds with whatever good the company was actually trying to achieve.
Like Romney, Icahn claims to “unlock hidden value” by destroying viable companies and feeding on the remains.
Is that what Bain Capital was about? I didn’t look too deep into it. But yeah, that’s definitely what Ichan is about.
Yep. One of my clients is a company that, in another incarnation, underwent evisceration at Bain’s hands. Vital expertise was jettisoned and to an extent they’re still rebuilding the business to recover from it.